A Southeast Asian Economic Community: Impossible Dream, or Inevitable Future?

A Southeast Asian Economic Community: Impossible Dream, or Inevitable Future?

In a world rife with waves of anti-globalism and protectionism, many have witnessed what they believe to be the decline of economic integration. From Brexit, to the United State’s withdrawal from the Trans-Pacific Partnership, the tide seems to be turning in many parts of the world. South East Asia is an exception. The Association of Southeast Asian Nations (ASEAN) is an international institution made up of 10 nations (namely, Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam). ASEAN seeks to reverse the tide, and promote a more cohesive, innovative and integrated economic region through a project known as the ASEAN Economic Community (AEC).

This undertaking took its first steps in 1992, known as the ASEAN Free Trade Area and was later formalised as the ‘AEC’ in the Bali Concord II of 2003. As the third pillar of the ASEAN Community, a range of agreements were signed to promote the AEC’s aims of freer trade, increased investment, and dynamic innovation in the region. The AEC seeks to create a single market and base of production, while equitably distributing the benefits of economic growth. Ultimately, the AEC seeks to reduce the developmental gap in the region, creating a more people-oriented ASEAN. [1]

This shared economic project, while extremely consequential, faces an uphill battle due to its economic, social and political context within the region. These obstacles, however, are not insurmountable, but will require ASEAN to learn from the successes and failures of the European Union (EU), as well as rely on its unique regional mechanism for diplomacy, known as the ‘ASEAN Way’.


The Uphill Battle

One of the most difficult obstacles facing the AEC is the current state of infrastructure in Southeast Asia. Although regional infrastructure has been improving over the last few years, it is far from ideal. The Asian Development Bank reported in 2014 that ASEAN countries were home to only 10.51 kilometers of road per 1,000 people, the lowest amount among Europe, Latin America, and central Asia.[2] The disparity of infrastructure is, to a large extent, symptomatic of socioeconomic inequalities across the region. Singapore, the member state with the highest GDP per capita in 2015, had a GDP per capita just over 44 times that of Cambodia, the country with the lowest GDP per capita in the same year.[3] This is important since transport and regulatory systems are necessary for the efficient trade of goods. As long as there is a wide infrastructural gap between ASEAN countries, achieving free trade will not be feasible. That said, ASEAN is making progress through programs which will boost infrastructural parity, such as the ASEAN Highway Network, or the Singapore-Kunming Railway Link. In addition, China continues to forward its Belt and Road Initiative which seeks to further improve connectivity in the region.[4]

The second major obstacle facing the AEC is its lack of identity as a socio-cultural community. Ex-Director General of the World Trade Organization Pascal Lamy pointed out that it “has taken decades for the EU to slowly build a sense of community and the task for ASEAN may be even greater, given the diversity in history, culture, traditions… among its 10 members.”[5] When ASEAN was founded in 1967, it was primarily for economic purposes, but in the years to come there was a cognizance of the importance of a common identity as an anchor for regional integration. Lamy noted that as with any major regional economic bloc, segments of society will lose out to globalization, and others will profit from it. Brexit, he says, “should serve as a reminder that public support for deeper integration cannot be taken for granted.” This notion is precisely why Southeast Asia must build towards a common identity amongst its people. Discontent against globalization may only be quashed if people see themselves as part of a larger project, one that they care about and identify with. Learning from the EU, Lamy argues that “just as globalization needs to be humanized and made more inclusive, the same is also true for regional economic integration.” It is the AEC’s vast cultural and political diversity which threatens this socio-cultural community, as there is nearly no basis upon which to found a common identity. Identity must be borne from a common set of values, and in a region with hundreds of languages, a history of discord and war, and the prevalence of top-down governance, the creation of abstractions like ‘an identity’ pose a large obstacle.

The third and most fundamental obstacle facing the AEC is the nature of political institutions within the region. The region is host to military state, full and semi democracies as well as Islamic and communist states. Democracy in Southeast Asia has been adapted to suit the varying values of different states. The relative lack of democracy in the region compared to, for example, Europe has allowed for powerful elites within the region to disproportionately reap economic benefits from ASEAN countries. In ‘Why Nations Fail’, Professor Daron Acemoglu highlights the economic implications of political institutions where power and control is concentrated amongst the elite. He posits that more democratic institutions with broad bases of power are more transparent, accountable and likely to create economies which distribute wealth equitably.[6] The same analysis can be applied to Southeast Asia, where high levels of perceived corruption in most member states is a key example of how a lack of accountability in public institutions poses a significant concern for equitable development in the region.[7] Unless Southeast Asia addresses these symptoms of its various political institutions, it is not likely that the ultimate aim of a people-oriented ASEAN will be achieved, as power and wealth will continue to be concentrated in the upper echelons of society.


The Road Ahead

Despite the nature of the AEC’s obstacles, they are not insurmountable. As long as ASEAN relies on its diplomatic mechanism, known as the ‘ASEAN Way’, it stands a chance to overcome its obstacles. The ASEAN Way prioritizes informal agreements and constructive consensus building, focusing on building relationships between nations. This form of diplomacy requires non-binding agreements and goodwill among nations. By focusing on areas where consensus can be built, disputing countries are able to continue cooperating. The decision-making process on international agreements is influenced greatly by think tanks, academics and businesses, and is one that allows for a dynamic flow of ideas between parties. However, the non-binding aspect of the ASEAN Way is why many perceive it to be ineffective. But it is important to recognize that because of Southeast Asia’s history of conflict and immense diversity, a more formal and binding alternative like the bureaucracy of the EU is ultimately not possible.

The economic integration that Southeast Asia seeks to accomplish is a different model to that of the EU, and is proceeding at a far more gradual pace. The ASEAN Way offers a solution to the AEC’s obstacles. It has the potential to align member states’ incentives so that mandatory legislation may not be needed to spur the gradual change ASEAN seeks to achieve. The Monitoring and Evaluation Frameworkoffers a level of transparency about each member state’s commitment to the shared project.[8]  These reports create a mutual incentive to adhere to the AEC Strategic Plan, since investors across the region monitor continual progress, and relationships between countries are determined by their mutual goodwill.

The region has a long way to come in order to achieve its aim, but is also prepared to gradually face the barriers that stand in its way. The economic consequences of the AEC’s integration are more equitable development, as businesses of all sizes are able to access more supply chains, consumers are able to access more choices, and the region can negotiate external deals as a bloc. By learning from aspects of the EU, and by relying on the ASEAN Way’s ability to align incentives, ASEAN has a golden opportunity to lay the foundation for a future of sustainable prosperity.


Works Cited

[1] “ASEAN Economic Community – ASEAN | ONE VISION ONE IDENTITY ONE COMMUNITY”. 2017. ASEAN | ONE VISION ONE IDENTITY ONE COMMUNITY. http://asean.org/asean-economic-community/.

[2] Steffensen, Craig. 2017. “Infrastructure Development In Southeast Asia”. Presentation, CIC National Capital Conference 2014.

[3] ASEAN Statistical Leaflet, Selected Key Indicators. 2016. Jakarta: The ASEAN Secretariat. http://asean.org/storage/2012/05/ASEAN_Stats_Leaflet2016_web.pdf.

[4] “Southeast Asia: A Notch In China’s Belt And Road Initiative”. 2017. Stratfor Worldview. https://worldview.stratfor.com/article/southeast-asia-notch-chinas-belt-and-road-initiative.

[5] ASEAN Economic Integration Brief No. 1/June 2017. 2017. ASEAN Economic Integration Brief. Jakarta: ASEAN Integration Monitoring Directorate. http://asean.org/storage/2017/06/ASEANEconomicIntegrationBrief_No.01_30Jun2017.pdf.

[6]  Acemoglu, Daron. 2012. Why Nations Fail. United States: Crown Business.

[7]  Transparency. 2016. “Corruption Perceptions Index 2016”. Www.Transparency.Org. https://www.transparency.org/news/feature/corruption_perceptions_index_2016.

[8] Towards: ASEAN Economic Community 2025: Monitoring ASEAN Economic Integration. 2017. Jakarta: The ASEAN Secretariat. http://asean.org/storage/2012/05/Towards-AEC-2025-Monitoring-ASEAN-Economic-Integration.pdf.